Opinion
6:22-bk-02002-GER
11-05-2024
In re Yaniris R. Paredes, Debtor.
Chapter 7
ORDER DENYING MOTION FOR ALLOWANCE AND PAYMENT OF ADMINISTRATIVE CLAIM
Grace E. Robson United States Bankruptcy Judge
THIS CASE came before the Court on October 22, 2024 at 10:30 a.m. (the "Hearing") upon Maximum Recovery Consultants, Inc.'s Motion for Allowance and Payment of Administrative Claim (the "Motion") (Doc. No. 87) filed by Maximum Recovery Consultants, Inc. ("Maximum"), wherein Maximum requests the Court allow Maximum's administrative claim in the amount of $9,375.00.
In 2019, Debtor Yaniris R. Paredes ("Debtor") hired the law firm of Ramon, Rodriguez & Blanco-Herrera ("Special Counsel") to represent her in a lawsuit filed in Orange County, Florida, against Geovera Specialty Insurance Company ("Geovera") for breach of contract (the "Lawsuit"). In connection with the Lawsuit, on or around July 2019 (before this bankruptcy case was filed), Special Counsel retained the services of Maximum. The Motion states that Maximum's services included a pre-inspection scope, property inspection, review of aerial imagery and property data, interview with Debtor, estimate of damages, as well as providing availability for deposition and trial testimony, if needed, concerning the scope of damages and property assessment concerning that property inspection and estimate.
Debtor filed a voluntary petition under Chapter 7 of the Bankruptcy Code on June 6, 2022 (the "Petition Date"). Thereafter, Carla P. Musselman, Chapter 7 Trustee ("Trustee"), filed an application to employ Special Counsel to represent Debtor's estate in the pending Lawsuit, with employment effective as of the Petition Date. The application was approved. However, Trustee never employed Maximum.
All references to the Bankruptcy Code refer to 11 U.S.C. §§ 101-1532.
Application to Employ Special Counsel Nunc Pro Tunc (Doc. No. 32).
Order Authorizing Employment of Special Counsel Effective as of Petition Date (Doc. No. 33).
A settlement was reached in the Lawsuit and Trustee filed a motion seeking to approve the compromise, wherein Geovera agreed to pay $37,500.00 (the "Settlement"). The Settlement was approved by this Court. In connection with the Settlement, Special Counsel filed an application for compensation seeking fees in the amount of $14,122.86 and reimbursement of expenses in the amount of $10,877.14; the expenses included Maximum's bill in the amount of $9,375.00. The Court, after reviewing the record and directing Special Counsel and Trustee to submit supplemental materials, awarded fees in the amount of $9,375.00 and expenses in the amount of $1,502.14, thereby excluding the request to include Maximum's cost as an expense. Special Counsel filed a motion for reconsideration of the Compensation Order, and that motion was denied by this Court.
Motion for and Notice of Proposed Compromise of Controversy (Doc. No. 37).
Order Granting Motion for and Notice of Proposed Compromise of Controversy and Approving Settlement (Doc. No. 39).
Application for Compensation - Special Counsel (Doc. No. 36).
Order (1) Directing Special Counsel to File Supplement to Application for Compensation and (2) Directing Trustee to File Authority Treating Insurance Adjuster's Fees as an Expense (Doc. No. 45). As directed, Special Counsel and Trustee filed Authority Supporting Treating Insurance Adjuster as an Expense (Doc. No. 48); Supplemental Application for Compensation - Special Counsel (Doc. No. 47); Notice of Filing (Doc. No. 49).
Order Approving in Part Application for Compensation - Special Counsel (the "Compensation Order") (Doc. No. 50).
Notice and Motion for Reconsideration of Order Approving in Part Application for Compensation-Special Counsel (Doc. No. 52).
Order Denying Motion for Reconsideration (Doc. No. 56). While Special Counsel appealed the Order Denying Motion for Reconsideration (Doc. No. 59), the appeal was voluntarily dismissed.
Maximum has now filed the Motion, requesting the Court allow Maximum to have an administrative expense claim in the amount of $9,375.00. Maximum argues that had it not inspected the property, not provided the estimate, or, if required, refused to testify at a deposition or trial, Special Counsel would have had to obtain the services of a new loss consultant to provide these same services. Therefore, even though Maximum was retained pre-petition and provided its services pre-petition, it argues that it provided a concrete benefit to the estate and therefore is entitled to an administrative expense claim.
Maximum seeks an administrative claim pursuant to 11 U.S.C. § 503(b)(1)(A)(i). Section 503(b)(1)(A)(i) provides that "[a]fter notice and a hearing, there shall be allowed administrative expenses . . . including-the actual, necessary costs and expenses of preserving the estate including . . . commissions for services rendered after the commencement of the case." "The Eleventh Circuit has interpreted this Code provision to require not only that the expense be 'actual' and 'necessary', but also that there be a concrete benefit to the debtor's estate." The party requesting the administrative expense claim bears the burden of proof by a preponderance of the evidence.In order for a claim to qualify as an administrative expense: first, "an expenditure must have occurred, or an obligation must have been incurred, post-petition"; and second, "[t]he expenses must confer a 'concrete benefit to the debtor's estate.'" Absent extraordinary circumstances, administrative claims are reserved for post-petition fees and expenses, even if the estate reaped a benefit. As Collier on Bankruptcy explains, "[t]he principle that an administrative expense can arise only from a transaction with the trustee (or debtor in possession) of the estate is derived from the reference in section 503(b)(1)(A) to the 'estate.' The earliest a bankruptcy estate exists is on the petition date."
11 U.S.C. § 503(b)(1)(A)(i) (emphasis added).
In re Beverage Canners Int'l Corp., 255 B.R. 89, 92 (Bankr. S.D. Fla. 2000) (citing Broadcast Corp. of Ga. v. Broadfoot (In re Subscription Television of Greater Atlanta), 789 F.2d 1530 (11th Cir. 1986)).
In re New WEI, Inc., No. 15-02741-TOM-7, 2018 WL 1115200, at *3 (Bankr. N.D. Ala. Feb. 26, 2018) (citing Tippins Bank and Trust v. Jarriel (In re Jarriel), 518 B.R. 140, 146 (Bankr. S.D. Ga. 2014)); see also In re Section 20 Land Grp., Ltd, 261 B.R. 711, 716 (Bankr. M.D. Fla. 2000) ("An administrative expense claimant has the burden of proving that either the debtor-in-possession incurred the transaction on which the claim is based or that the claimant furnished consideration to the debtor-in-possession and that the transaction resulted in a direct benefit to the debtor-in-possession.").
In re New WEI, Inc., 2018 WL 1115200, at *3 (citing In re Hackney, 351 B.R. 179, 184 (Bankr. N.D. Ala. 2006)).
Id. (alteration in original) (citing In re Faber, 477 B.R. 912 (Bankr. M.D. Fla. 2012)).
See, e.g., In re Am. Home Mortg. Holdings, Inc., 411 B.R. 169, 176 (Bankr. D. Del. 2008); In re Hackney, 351 B.R. at 183; Tavormina v. Weiner (In re Alchar Hardware Co., Inc.), 759 F.2d 867, 868-69 (11th Cir. 1985).
See In re Hackney, 351 B.R. at 206-07 (string citing cases, including Xifaras v. Morad (In re Morad), 328 B.R. 264 (1st Cir. BAP 2005), wherein the court affirmed the bankruptcy court's denial in a Chapter 7 case of administrative expense priority to attorneys' fees and litigation costs incurred by a creditor in obtaining, prior to bankruptcy, a judgment setting aside fraudulent transfers of property made by the debtor to family members even though creditor's efforts resulted in property becoming part of the debtor's bankruptcy estate, and In re Moskovic, 77 B.R. 421 (Bankr. S.D.N.Y. 1987), wherein the court denied an administrative expense priority to the claim of a real estate broker in a Chapter 7 case even though the broker had obtained, prepetition, a purchaser for certain real estate owned by the debtor, as well as an executed contract for sale, and the sale closed post-petition and resulted in substantial benefit to the bankruptcy estate); see also Kadjevich v. Kadjevich (In re Kadjevich), 220 F.3d 1016, 1019-20 (9th Cir. 2000) ("Critically, [under § 503(b)(1)(A),] only post-petition debts can be treated as administrative expenses; pre-petition debts may not be granted administrative-expense priority." (first citing 11 U.S.C. § 503(b)(1)(A); then citing Reading Co. v. Brown, 391 U.S. 471, 482, 88 S.Ct. 1759, 1765, 20 L.Ed.2d 751 (1968); then citing Burlington N. R.R. Co. v. Dant & Russell, Inc. (In re Dant & Russell, Inc.), 853 F.2d 700, 707 (9th Cir. 1988); and then citing Christian Life Ctr. Litig. Def. Comm. v. Silva (In re Christian Life Ctr.), 821 F.2d 1370, 1373-74 (9th Cir. 1987))).
4 Collier on Bankruptcy ¶ 503.06 (16th ed. 2024).
As admitted by the Trustee, Maximum is a professional whose employment was not approved in this case. However, regardless of whether Maximum is a professional under the Bankruptcy Code requiring authorization to be employed, the retention of Maximum was a pre-petition expense and therefore awarding an administrative expense claim in this case would not be appropriate. Maximum was not hired by Debtor or Trustee, but rather by Special Counsel pre- petition. Maximum provided pre-petition services and the speculative need to testify at a deposition or trial post-petition is not enough to justify awarding an administrative expense claim when the retention and the services were pre-petition. Even though Maximum's work product arguably resulted in a benefit to the bankruptcy estate because it was used to obtain the Settlement, this is not enough to allow an administrative expense claim when Maximum had already performed its services before the bankruptcy was filed or the estate was ever created.
See Authority Supporting Treating Insurance Adjuster as an Expense (Doc. No. 48). Sections 327 and 330 of the Bankruptcy Code require professionals to have the "court's approval" to be employed and thus compensated. See 11 U.S.C. §§ 327, 330.
See In re Reda, Inc., 54 B.R. 871, 882 n.25 (Bankr. N.D.Ill. 1985) ("An insurance adjuster such as Lazarus-Willis is not a 'professional person' for Bankruptcy Code purposes." (citing In re Seatrain Lines, Inc., 13 B.R. 980, 981 (Bankr. S.D.N.Y. 1981)).
Maximum also makes an argument that this Court should use its powers under 11 U.S.C. § 105(a) to allow its administrative claim. However, § 105(a) cannot be used to create substantive rights not found in the Bankruptcy Code nor can it be used to contravene specific Bankruptcy Code provisions. Because an administrative claim would not be appropriate under § 503, the Court does not find it is appropriate to use § 105(a) to create a right that is not otherwise found in the Bankruptcy Code.
See Law v. Siegel, 571 U.S. 415, 421, 134 S.Ct. 1188, 1194, 188 L.Ed.2d 146 (2014) ("[I]n exercising those statutory and inherent powers, a bankruptcy court may not contravene specific statutory provisions."); Padilla v. Wells Fargo Home Mortg., Inc. (In re Padilla), 379 B.R. 643, 667 (Bankr.S.D.Tex. 2007) ("A bankruptcy court's authority under § 105(a) is not without limits. Section 105(a) can not be used to create substantive rights not found in the Bankruptcy Code or contravene specific Code provisions." (citing United States v. Waindel (In re Waindel), 65 F.3d 1307, 1309 (5th Cir. 1995))); In re Gilbert, 652 B.R. 817, 827 (Bankr. M.D. Fla. 2023) (recognizing that the court could not use § 105(a) to grant the debtor relief as such would run contrary to specific provisions of the Bankruptcy Code).
To the extent that Maximum relies on In re Brennick, 178 B.R. 305, 307 (Bankr. D. Mass. 1995), for the proposition that courts have used § 105(a) to grant administrative expense claims that were "necessary or appropriate" to carry out the provision of § 503, the Court finds In re Brennick to be unpersuasive and the facts inapposite to those in this case. See, e.g., In re Tel-Cent. Commc'ns, Inc., 212 B.R. 342, 348-49 (Bankr. W.D. Mo. 1997) (discussing In re Brennick and disagreeing with the court's ruling).
Accordingly, it is ORDERED:
1. The Motion (Doc. No. 87) is DENIED.
# # #
Attorney Meaghan E. Murphy is directed to serve a copy of this Order on interested parties who are non-CM/ECF users and file a proof of service within three days of its entry.